How Shareholder Reforms Can Pay Foreign Policy Dividends

Overview

In the wake of the Enron collapse and other business scandals, the United Statesmust place corporate governance firmly on its foreign policy agenda, argue the authors of this study. Improving corporate governance and enhancing shareholder protections have several foreign policy advantages, according to this report. They will clear contentious disputes from international trade negotiations, reducing the political fallout; enhance financial stability and reduce the need for the United States to get involved in expensive bailouts; buttress the legitimacy of free-market capitalists; and preserve the merits of “light-handed” U.S. securities regulation.

The authors argue that the U.S. government should embrace corporate governance reform as a strategic goal and promote it at the highest international level. They propose concrete policy recommendations to accelerate the pace of corporate governance reforms at home and abroad: the U.S. government should expand its support for principles of corporate governance and use them as the basis for developing a global “gold standard” of shareholder protections; the Securities and Exchange Commission should encourage a higher standard of accounting and audit rigorously in global capital markets; U.S. government agencies should require fuller disclosure of corporate governance policies and proxy voting records and should press for liberalization of pension-fund and money-management services in the World Trade Organization’s market-access negotiations; and the Treasury Department and the Federal Reserve System should engage foreign prudential regulators to develop corporate governance standards for global financial institutions.